Tax-exempt status of land trust at issue in East Lyme agreement

East Lyme - The Woodsmen Land Trust of Old Saybrook is contesting a public statement that it has lost its tax-exempt status.

Internal Revenue Service public records show that the land trust automatically lost its 501(c)(3) status for failing to file income tax returns for three years. However, the trust became a tax-exempt entity less than three years ago, in January 2011.

The trust, which is proposing a $2.3 million deal for the town to acquire the 166-acre Gurley Brook Preserve near the Niantic River and 52 acres bordering the town's Darrow Pond property, is seeking a reversal of the IRS ruling that was posted in August. The IRS will not comment further, citing privacy and disclosure laws.

"We cannot confirm anything about the status of the organization until the application has been reapproved and they have been reinstated," wrote IRS Media Specialist Peggy Riley in an email. "If (their) revocation was done in error they can ask to be reinstated retroactively."

She added that, in general, if an annual return is due when an application for tax-exempt status is pending, the organization is still required to file the return.

The IRS sent notice in January 2012 that the trust had tax-exempt status retroactive to January 2011, according to an IRS document. The trust was incorporated in 2011.

Trust President John C. Ellis said the IRS has informed him that a correction for the administrative error is being processed. The issue surfaced after a letter to the editor of The Day, published Nov. 12, advised the selectmen to be cautious about the land proposal and said the trust had lost its tax-exempt status.

When contacted by The Day last week about the fact that IRS records show the revocation, First Selectman Paul Formica said he would bring the matter to the Board of Selectmen's attorney's attention to see what impact there would be if the trust is indeed not tax-exempt.

"Then we'll make a prudent and thoughtful decision," he said.

The selectmen will meet in closed session tonight to review responses from the Woodsmen Land Trust provided after the board asked the trust at a previous meeting to clarify the terms of the offer.

The land proposed for acquisition includes not only the Gurley Brook Preserve but also about 7 acres of Darrow Pond and 45 acres on Upper Pattagansett Road approved for an affordable housing development. Under the offer, the land trust would purchase the land or an option on the land from New England National LLC, the development company that has a long-standing lawsuit against the town over land near Darrow Pond. The trust would then assign or option the rights to the town.

The trust has a $500,000 state grant to purchase the Gurley Brook Preserve from KSK Associates LLC. Republican Board of Finance member Steve Harney is the principal for KSK.

The deal would include removing several encumbrances on the town's Darrow Pond property, including an easement restricting public access on the pond itself, according to Ellis.

In a letter to selectmen last Friday, Ellis said New England National and its principal, Robert Blatt, are donating $500,000 to match the state grant and agreed to extend the closing of the transaction until March 31, 2014.

Ellis wrote he decided earlier in the week that more time was needed for the deal because of the upcoming holiday season and a new round of open space grants for which the town could apply. He had earlier said the deadline was the end of the year.

Former First Selectwoman Beth Hogan, a Democrat who was elected in November to the Board of Finance, disclosed the revoked tax exemption in the letter to The Day. Hogan said in an interview that she was going by information she found on the IRS website and www.guidestar.org, and she thought she should share the information.

She said the land trust may have filed the necessary forms but should present the proof to the Board of Selectmen to make sure everything is in order.

The open space proposal is a discussion and possible action item on the agenda of the regular selectmen's meeting, which immediately follows a 7 p.m. special town meeting at Town Hall. As a separate item, the board may authorize the first selectman to execute a conservation easement on the town's Darrow Pond property, a component of the original purchasing contract.